Working Paper: CEPR ID: DP1269
Authors: Elhanan Helpman
Abstract: The paper first describes a number of political economy approaches that have been developed to explain trade policies. All approaches are presented in a unified framework that helps to identify the key differences between them. These comparisons revolve around tariff formulas that are predicted by political equilibria. A typical formula explains cross-sectoral variations in rates of protection as well as differences in average rates of protection across countries. Second, I review a set of results that emerge from a new approach to the interaction of international economic relations with domestic politics. Importantly, there are two-way interactions in such systems. They link the formation of trade policies in the international arena with the activities of domestic special interest groups. The use of a framework of this sort is essential for a proper analysis of a host of important problems, such as negotiations about tariff levels or the formation of free trade areas. Recent studies have developed suitable tools for this purpose.
Keywords: political economy; trade policy
JEL Codes: F13; F15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher lobbying expenditures by pro-protectionist groups (F13) | higher tariff rates (F13) |
| concentration of ownership of sector-specific inputs (L11) | effectiveness of lobbying (D72) |
| concentration of ownership of sector-specific inputs (L11) | higher protection levels (D18) |
| broader ownership (G34) | lower protection (D18) |